Our latest White Paper, Creating A Successful Marketing Strategy, is now available!

While referrals are great, and will always be part of growing a business, many who have relied on referrals exclusively in the past have more recently needed to supplement these referrals with a more active marketing approach. And the world has changed – competition has increased, clients have become more discerning and social media has had a dramatic impact on the types of marketing activities that are the most effective.

In order for a marketing strategy to be successful, it must be multi-faceted, realistic and implemented consistently over time. The messaging should be focused on developing awareness of your brand and on building trust around that brand.

• Detail specific activities you intend to undertake;
• Identify the audience each activity is targeted to;
• Specify how you’re going to measure success;
• Be flexible enough to allow adjustments as necessary; and
• Stipulate who on your team is responsible for each activity.

 Click here to download the entire White Paper.

Hardly a day goes by that another firm doesn’t either enter into the retail alternative investment space, or expand their offerings; Fidelity and Schwab just announced major initiatives. Becoming more common as well, however, are firms closing retail alternative investment products; two firms recently shuttered their alternative (long/short) investment ETF offerings.

As investors seek higher yield in today’s low return environment, they naturally are turning to alternative investments and the hope and promise of higher and often uncorrelated returns. This trend scares me – almost a  much as today’s stock market, which is fueled by the Fed’s free money policy more so than by economic fundamentals. The complexity of many alternative investments have necessitated that they have historically been for institutional or very high net worth investors only – has anything really changed to fuel today’s growth in the retail marketplace?

I caution advisors to tread carefully if they are exploring or increasing their clients’ exposure to alternative investments. At least make the commitment to educate your clients fully on the inherent risks of these types of investments. You don’t want to be one of the last to jump on the bandwagon just before …

Back to my question: What Is An Alternative Investment? The answer is quite complicated, because the category spans everything from private equity to mutual funds to ETFs – from liquid types of investments to illiquid types of investments – from those that require investors be qualified (meeting certain income and net worth requirements) to those that don’t. In fact, investing in timber is considered by many to be an alternative investment.

My point? Advisors need to be extra careful in ensuring that before clients venture into any alternative investments that the investment is appropriate for their investment profile and asset allocation and that they fully understand the risks involved as well as any liquidity restraints. Is the additional risk being taken worth it?

I am not opposed to alternative investments – when and where they fit. I just fear that they are becoming the latest bubble in the industry, and that clients who are still struggling from the losses incurred since 2008 are about to make another mistake. Advisors – it’s your job to help your clients avoid such mistakes as opposed to helping them chase return.

Most advisors would probably answer this question in the affirmative – “Of course my clients trust me.” While no one wants to admit that they aren’t viewed positively, asking yourself this question, and honestly reviewing your business practices and relationships might help lead you to a more prosperous future.

I say this after reading the results of another study showing that many investors really don’t trust their advisors and/or financial services providers. A study by Hearts and Wallets, which includes an annual study of 5,400 households, concludes that 55% of respondents are afraid that they will be ripped off by their advisor, and less than 20% fully trust their provider – down 5% since 2010.

Aside from the obvious, that you want your clients to trust you, the study also reveals that providers who are trusted enjoy an average share of wallet that is nearly double low trust relationships. These clients are also more likely to have their advisors help them in the planning process, and they are more likely to own more products and be open to new concepts, according to Hearts and Wallets.

So – the all important question is – what helps build trust?

• How well the investor understands how the advisor and the firm earn money. People aren’t as concerned with specific fees as they are with understanding how the system of incentives works.
• Investors want to feel that their provider is unbiased and puts their interests first, understands them and shares their values.
• Investors want to work with people who are responsive.

It never ceases to amaze me that it always seems to come back to explaining fees – not the fees themselves – but clearly articulating how everyone is paid. The fee discussion should be at the forefront of meetings with prospects – if the client has to ask – it’s probably too late! It also comes down to client service – being responsive, and setting up your practice to keep clients informed on their own terms.

Finally, one last statistic from the report – 33% of investors report that their main motivation to consolidate their assets is based on rewarding proven results – another key trust builder. And with an estimated $16 trillion in assets ripe for some sort of movement (rollover, consolidation), this question is worth thinking about.

Usually when I talk about social media – and advocate for its use – I focus on the benefits to you the financial services professional – the ability to provide better client service, the longer-term goal of obtaining new business, etc. But, an interesting study caught my eye the other day – it focused on the fact that 90% of high net worth investors use social media. What better way to convince you to use social media than to know that the odds are really good that your client is using it as well?

First, the study. Cogent Research, teaming with LinkedIn, surveyed mass affluent, affluent and ultra-affluent investors with more than $100,000 in investible assets, and specifically honed in on their use of social media, as well their perceptions of social media. The results are quite interesting:

• Over 90% participate in social media in some form or another
• Only 4% currently interact with their financial advisor on social media, but 52% said they would if their financial advisor utilized social media
• 67% visit LinkedIn and Facebook on a monthly basis
• 46% of investors using social media do not have a financial advisor
• 28% perceive a financial company as “innovative” and “on the cutting edge” if they utilize social media

In the spirit of giving clients what they want, these statistics should at least provoke some serious thinking about how you use social media. Of course, just knowing that your clients utilize social media is not enough – you need to know what their preferred media are and a little more about what they are looking for.

When in doubt, the best thing is to always ask. Why not conduct a survey of your clients/prospects geared toward seeing how you can provide better information to them – timely information provided when they want it and how they want it. Clients will appreciate that you are soliciting their opinion and trying to improve your deliverables. You’ll be able to garner invaluable information in planning your client servicing efforts moving forward as well.

If you don’t want to do a survey, then incorporate social media into your next quarterly review with clients and/or conversation. Informally ask them their opinions – you can accomplish many of the same goals as a survey. Use whichever format makes you and your clients feel more comfortable. You will be glad that you do.

We have talked in the past about the growing trend of investors deciding to “go it alone” – forgoing developing relationships with financial advisors to invest directly through intermediaries like Fidelity and Schwab. In all likelihood, investors likely to fall into this category probably have under $10 million to invest; those with more – considered by many to by ultra high net worth investors, are probably more likely to seek advice due to the complexity of their finances.

In many cases, the meager returns of the past ten years have frustrated investors who have been paying a fee. Intermediaries have responded by offering more investment options. Unfortunately, and what makes me nervous is that the increasing complexity of some of these investments make it hard for many investors to truly understand them – and the associated risks.

Many investors are seeking more income – and many funds have for example increased their allocations to equites to try and accommodate these needs. Many firms have also entered the alternative investment spaces, either by developing their own products or by partnering with hedge fund providers. One example is the large increase in long-short mutual funds over the past few years.

Firms expanding recently in the “retail” alternatives space include Janus, BlackRock and Franklin Templeton.

But do investors really understand the inherent risks associated with these investments? In most cases, I would argue that they don’t. Additionally, many of these new products have substantially higher fees than traditional mutual funds – are investors aware of this fact? Probably not. Interestingly, the SEC just announced the increasing use of alternative and hedge fund strategies by mutual funds, ETFs and variable annuities as a new and emerging risk.

This disturbing trend has a positive side in that it presents an opportunity of advisors to educate clients – and to promote educational materials that they produce to perhaps sway some of these “go it aloners” to come speak with them and allow them the opportunity to show them that partnering with a financial advisor may well be a sound risk-reducing strategy.

More than $300 billion in rollover assets migrate from old DC plans every year, and a recent study by Cerulli Associates projects that annual RIA rollovers will reach $450 billion by 2017, thanks in large part to baby boomer retirements. A few thoughts on how to compete for these assets:

1) According to a recent report by Cogent Research, the most important factor is a participant’s decision of whether or not to move his/her account is brand recognition – more so than even performance and fees. Among the larger firms, Fidelity, Vanguard, Charles Schwab, T. Rowe Price and USAA have been gaining market share through increased advertising, educational information on their websites and other direct selling efforts to clients.

Fidelity has ranked first in Cogent’s report for each of the past three years. They have been successful in part because they attempt to talk to each client about all of their available options, including leaving the assets in place. This non-threatening approach – focused on client education – makes a lot of sense.

2) But let’s say you don’t have the advertising dollars available, or are a smaller firm. You can still compete for these assets. According to Cogent’s study, 71% of investors leave their assets in place for at least five years. This seeming lack of urgency in movement gives current providers a lot of time to talk to clients and get them comfortable with a move.

Any size firm can do a few things during this transition period – regardless of its length – to increase the odds that they can win the battle for the assets:

• Offer clients consolidated reporting on all assets – including these assets that you do not hold. Even if you don’t get paid on them now, you can consult with the client on their total asset allocation and financial situation. Firms that provide this type of service tend to win when clients who utilize multiple advisors and/or keep assets in multiple locations, decide to consolidate; and
• Make it easy for clients to move the assets when they are ready. Nothing will hurt your business more than making the transition process more cumbersome than it needs to be. Develop a system, train your staff, explain it to clients and implement it consistently.